Cameron Industries is purchasing a new chemical vapour depositor in order to make silicon chips. It will cost $8 million to buy the machine and $25 000 to have it delivered and installed. Building a clean room in the plant for the machine will cost an additional $2 million. The machine is expected to have a working life of five years. If straight-line depreciation is used, what are the annual depreciation expenses in this case?

Question

Quizplus · Accepted Answer

The total cost of the machine is $8,000,000 + $25,000 + $2,000,000 = $10,025,000.

To calculate the annual depreciation expenses, we divide the total cost by the number of years of the machine's useful life: 
Annual depreciation expenses = Total cost / Useful life 
= $10,025,000 / 5 
= $2,005,000

Therefore, the correct answer is D, with annual depreciation expenses of $1,605,000 being incorrect.

Cameron Industries Is Purchasing a New Chemical Vapour Depositor in Order